In an adjustable-rate mortgage, the amount paid above the index rate is known as?

In an adjustable-rate mortgage (ARM), the amount added to the index rate is known as the margin. The margin is essentially the lender's profit and is a fixed percentage that is determined at the time the loan is originated. This amount is added to the fluctuating index rate to determine the current interest rate that the borrower will pay during each adjustment period.

The concept of the margin is fundamental to understanding ARMs, as it helps differentiate between the variable element of the mortgage (the index) and the consistent, lender-defined portion (the margin). This ensures that while the borrower's interest rate can change based on market conditions, the lender retains a predictable, additional return on the loan throughout its life.

Understanding this term is crucial for borrowers considering an ARM, as it directly affects the overall cost of borrowing and can influence their financial planning.